Mortgage Term Glossary

A

Adjustable Rate Mortgage

A mortgage loan with an interest rate that can change at any time, usually in response to the market or Treasury bill rates. These types of loans usually start off with a lower interest rate comparable to a fixed-rate mortgage.

Adjustment Date

The actual date that the interest rate is changed for an ARM.

Affidavit

A signed, sworn statement made by the buyer or seller regarding the truth of information provided.

Amortization

Payment of a debt with equal periodic installments of principal and interest. This is calculated to amortize (pay-off) at the end of a fixed period of time.

Annual Mortgagor Statement

Yearly statement to borrowers detailing the remaining principal and amounts paid for taxes and interest.

Appreciation

An increase in the value of property over time.

Appraiser

A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

Appraisal

A document from a professional that gives an estimate of a property’s fair market value based on the sales of comparable homes in the area and the features of a property; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraisal Fee

Fee charged by an appraiser to estimate the market value of a property.

Appraised Value

An estimation of the current market value of a property.

Attorney Advance

Funds paid by the servicer for attorney fees and costs in connection with protection of its lien position in connection with title to the property or collection actions and/or foreclosure services as a result of default on the mortgage loan. These funds will be assessed to the mortgage loan balance due if permitted under the mortgage loan documents and allowable pursuant to applicable state law.

Automated Clearing House (ACH)

An automatic program through which the borrower consents to have mortgage payments withdrawn from a designated account every month without charge.

B

A mortgage loan with initially low interest payments, but that requires one large payment due upon maturity (for example, at the end of five or seven years).

Balloon Payment

The final lump sum payment due at the end of a balloon mortgage.

Bankruptcy

A federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

Billing Statement

A statement issued to the loan borrower on a monthly basis that provides a summary of current account activity, the current mortgage payment due and other basic information regarding the mortgage loan. The billing statement may be turned off and not issued by the mortgage servicer, if the loan becomes delinquent, is referred to foreclosure and/or the borrower files bankruptcy.

Biweekly Payment Mortgage

A mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.

Borrower (Customer)

One who receives funds in the form of a loan with the obligation to repay the loan in full with interest. Also referred to as mortgagor.

C

Chapter 7 Bankruptcy

A bankruptcy that requires assets be liquidated in exchange for the cancellation of debt.

Chapter 13 Bankruptcy

This type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court’s terms within a 3 to 5 year period.

Co-Borrower

An additional person that is listed on the title and assumes equal responsibility for the repayment of the loan.

Collateral

Security in the form of money or property pledged for the payment of a loan. For example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.

Collection Account

An unpaid debt referred to a collection agency to collect on the bad debt. This type of account is reported to the credit bureau and will show on the borrower’s credit report.

Convertible ARM

An Adjustable-Rate Mortgage loan that can be converted into a fixed-rate mortgage during a certain time period.

Corporate Advance

Funds paid by the servicer with the servicers’ own funds rather than escrow account funds for servicing-related expenses. These may include attorney advances, bankruptcy fees, lender-placed insurance premiums, inspections, property preservation costs and other expenses. These funds will be assessed to the mortgage loan balance due if permitted under the mortgage loan documents and allowable pursuant to applicable state law.

Co-Signed Account

An account signed by someone in addition to the primary borrower, making both people responsible for the amount borrowed.

Co-signer

A second person to sign a loan who agrees to assume a debt obligation if the principal borrower defaults on payments. This person has no ownership interest in the property and receives no benefit in any loan proceeds.

Credit Reporting Agency or Bureau

A company that gathers and sells information relating to the credit of individuals.

Credit Counseling

Education on how to improve bad credit and how to avoid having more debt than can be repaid.

Credit

An arrangement in which a borrower receives money to be paid back to the lender over time.

Cure/Reinstatement

The amount of funds required to be paid by the borrower to bring a delinquent mortgage loan account current. The reinstatement amount may include all past due payments, late charges, attorney advance, corporate advance or other fees as may be allowable pursuant to the mortgage loan documents and applicable state law.

Curtailment

The borrower’s privilege to make payments on a loan’s principal before they are due. Paying off a mortgage before it is due may incur a penalty if so specified in the mortgage’s prepayment clause.

Cushion (Reserve)

Funds a mortgage servicer may require a borrower to pay into an escrow account to cover unanticipated disbursements or disbursements made before the borrower’s payment are available in the account. The cushion amount may be limited pursuant to applicable state law.

Customer (Borrower)

A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

D

Daily Simple Interest (DSI)

Method of calculating interest on a daily basis, if provided for in the terms of the mortgage note and allowable pursuant to state law. Interest is calculated at the contract rate on the unpaid principal balance on the mortgage loan account based on the number of days that lapse from the date the prior payment is received to the date the current payment is received. Daily simple interest loans generally do not have a monthly grace period for payments received after the due date. Interest accumulates every day.

Deed

A legal document under which ownership of a property is conveyed.

Default

The inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60 to 90 days. Once in default the lender can exercise legal rights defined in the contract to begin foreclosure proceedings.

Demand Letter

Letter notifying borrower of delinquency or default on the mortgage. This letter may also serve as a notice of intent to foreclose as may be allowable pursuant to state law.

Depreciation

A decline in the value of a house due to changing market conditions or lack of upkeep on a home.

Disbursement

Money paid out for servicing-related charges and expenses, including allowable payments made out of escrow for taxes, insurance premiums or other escrow items.

Due Date

The Due Date is the date on which the Borrower’s monthly installment of principal, interest and where applicable, Escrow, is due as stated in the Note.

E

Ownership interest in a property. This is the difference between the home’s market value and the outstanding balance of the mortgage loan (as well as any other liens on the property).

Escrow Account

The actual account where the escrow funds are held in trust.

Escrow Analysis

A periodic review of escrow accounts to make sure that there are sufficient funds to pay the taxes and insurance on a home when they are due.

Escrow Payment

The portion of the borrower’s monthly payments that are held by a lender or servicer to pay taxes, mortgage insurance, hazard insurance, and other items as they become due. Also called impounds or reserves in some states.

Escrow Shortage

Amount by which current escrow account balance falls short of the projected target balance at the time of an escrow analysis.

Escrow Surplus

Amount by which current escrow account balance exceeds the projected target balance at the time of an escrow analysis.

Easement

A right-of-way given to a person authorizing them access to an owner’s land.

F

Fair Housing Act

A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

FHA

Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

Fannie Mae

Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. Also known as a Government Sponsored Enterprise (GSE).

First Mortgage

A primary mortgage on a property that has priority over all other claims to title. Fixed-rate Mortgage (FRM): A home loan with a predetermined interest rate which will remain the same over the life of the loan.

Fixed Rate Mortgage

A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Flood insurance

Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain; the lender will require flood insurance before approving a loan.

Forbearance

A lender may decide not to take legal action when a borrower is late in making a payment. Usually this occurs when a borrower sets up a plan that both sides agree will bring overdue mortgage payments up to date.

Foreclosure

The legal process by which a property may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the homeowner is in default for a reason other than the failure to make timely mortgage payments.

Freddie Mac

Federal Home Loan Mortgage Corporation (FHLM); a federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers. Also known as a Government Sponsored Enterprise (GSE).

G

Ginnie Mae

Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

Grantee

An individual to whom an interest in real property is conveyed.

Grantor

An individual conveying an interest in real property.

Gross Income

Money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.

The Home Affordable Modification Program is part of the government’s Making Home Affordable Program, and provides homeowners an opportunity to modify their loan to more affordable monthly payments. For more information about this program, please visit MakingHomeAffordable.gov or contact your mortgage company directly.

Home Affordable Refinance Program (HARP)

The Home Affordable Refinance Program is part of the government’s Making Home Affordable Program, and provides homeowners an opportunity to refinance their loan to more affordable monthly payments – even if they have limited or no equity in their home. For more information about this program, please visit MakingHomeAffordable.gov or contact your mortgage company directly.

Home Equity Line of Credit

A way of borrowing money against the equity or assets that the homeowner has in the home to pay for things such as home repairs, college education, or other personal uses.

Home Equity Loan

A loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.

Home Inspection

An examination of the structure and mechanical systems to determine a home’s quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.

Home Warranty

Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner’s insurance; coverage extends over a specific time period and does not cover the home’s structure.

Homeowner’s Insurance

An insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms or other damages with protection against claims of negligence or inappropriate action that result in someone’s injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately.

HUD

The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.

HUD1 Statement

Also known as the “settlement sheet or “closing statement” it itemizes all closing costs; must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, points, and escrow amounts.

L

The penalty the homeowner must pay when a mortgage payment is made after the due date grace period.

Lender

A term referring to a person or company that makes loans for real estate purchases. Sometimes referred to as a loan officer or lender.

Lien

A legal claim against property that must be satisfied when the property is sold. A claim of money against a property, wherein the value of the property is used as security in repayment of a debt. Examples include a mechanic’s lien, which might be for the unpaid cost of building supplies, or a tax lien for unpaid property taxes. A lien is a defect on the title and needs to be settled before transfer of ownership. A lien release is a written report of the settlement of a lien and is recorded in the public record as evidence of payment.

Life Cap

A limit on the range interest rates can increase or decrease over the life of an adjustable-rate mortgage (ARM).

Line of Credit

An agreement by a financial institution such as a bank to extend credit up to a certain amount for a certain time to a specified borrower.

Liquid Assets

A cash asset or an asset that is easily converted into cash.

Loan Officer

A representative of a lending or mortgage company who is responsible for soliciting homebuyers, qualifying and processing of loans. They may also be called lender, loan representative, account executive or loan rep.

Loan Origination Fee

A charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.

Loan Servicer

The company that collects monthly mortgage payments and disperses property taxes and insurance payments. Loan servicers also monitor nonperforming loans, contact delinquent borrowers, and notify insurers and investors of potential problems. Loan servicers may be the lender or a specialized company that just handles loan servicing under contract with the lender or the investor who owns the loan.

Loan

Money borrowed that is usually repaid with interest.

Lock-in Period

An amount of time before loan closing that the borrower can secure an interest rate for the loan.

Lock-In

Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Loss Mitigation

When the homeowner and the mortgage company are working together to determine the appropriate option/workout solution to bring the mortgage current and avoid foreclosure.

M

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment

Market Value

The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.

Maturity

The date when the principal balance of a loan becomes due and payable.

Mitigation

Term usually used to refer to various changes or improvements made in a home; for instance, to reduce the average level of radon.

Modification

Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance or loan term.

Mortgage Insurance Premium (MIP)

A monthly payment -usually part of the mortgage payment paid by a borrower for mortgage insurance.

Mortgage Insurance

Insurance that protects the mortgage company against losses caused by a homeowner’s default on a mortgage loan. Mortgage insurance (or MI) typically is required if the homeowner’s down payment is less than 20% of the purchase price.

Mortgage Modification

A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.

Mortgage

A lien on the property that secures the Promise to repay a loan. A security agreement between the lender and the buyer in which the property is collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.

Mortgage Release (Deed-in-Lieu of Foreclosure)

The transfer of title from a homeowner to the mortgage company to satisfy the mortgage debt and avoid foreclosure, also called a Deed-in-Lieu of Foreclosure or a voluntary conveyance.

N

Notice of Default

A formal written notice to a borrower that there is a default on a loan and that legal action is possible.

Negative Amortization

Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Net Income

Your take-home pay, the amount of money that you receive in your paycheck after taxes and deductions.

Note Rate

The interest rate stated on a mortgage note.

Note

A legal document signed by a borrower that is an acknowledgment of the debt and an implicit promise to pay over a specific period of time for a specific sum.

P

Partial Payment

A payment that is less than the total amount owed on a monthly mortgage payment. Normally, lenders do not accept partial payments. The lender may make exceptions during times of difficulty. Contact your lender prior to the due date if a partial payment is needed.

Payment Cap

A limit on how much an ARM’s payment may increase, regardless of how much the interest rate increases.

Payment Change Date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

Payment Due Date

Contract language specifying when payments are due on money borrowed. The due date is always indicated and means that the payment must be received on or before the specified date. Grace periods prior to assessing a late fee or additional interest do not eliminate the responsibility of making payments on time.

Payoff Date

The Payoff Date is the date the Servicer receives the amount necessary to pay off the Mortgage.

PITI Reserves

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Payoff

The satisfaction of a mortgage due to:

Note maturity: Exception Code 60

Borrower prepayment: Exception Code 61

Repurchase: Exception Code 65

Borrower conversion of a convertible mortgage sold with repurchase option

Exception Code 66

PITI – Principal, Interest, Taxes, and Insurance

The four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner’s and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

PMI

Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.

Power of Attorney

A legal document that authorizes another person to act on your behalf. A power of attorney can grant complete authority or can be limited to certain acts or certain periods of time or both.

Pre-foreclosure Sale

A procedure in which the borrower is allowed to sell a property for an amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the borrower’s debt.

Premium

An amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Pre-Qualify

A lender informally determines the maximum amount an individual is eligible to borrow. This is not a guaranty of a loan.

Principal

The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow that money. The principal balance is the amount owed on a loan at any given time. It is the original loan amount minus the total repayments of principal made.

Promissory Note

A written promise to repay a specified amount over a specified period of time.

Property Tax Deduction

The U.S. tax code allows homeowners to deduct the amount they have paid in property taxes from their total income.

Property Tax

A tax charged by local government and used to fund municipal services such as schools, police, or street maintenance. The amount of property tax is determined locally by a formula, usually based on a percent per $1,000 of assessed value of the property.

Purchase Offer

A detailed, written document that makes an offer to purchase a property, and that may be amended several times in the process of negotiations. When signed by all parties involved in the sale, the purchase offer becomes a legally binding contract, sometimes called the Sales Contract.

R

Real Estate Owned is property acquired through foreclosure or deed-in-lieu of foreclosure.

Recovery

Distribution of borrower’s payment or other funds received to servicer as reimbursement for escrow, corporate, or other advances. Governed by the terms of the mortgage.

Reinstatement

The process of restoring an inactive mortgage to an active status. As part of the reinstatement, you must report and remit all interest due whether or not you received it from the borrower.

Reinstatement Period

A phase of the foreclosure process where the homeowner has an opportunity to stop the foreclosure by paying money that is owed to the lender.

Remaining Balance

The amount of principal that has not yet been repaid.

Repayment Plan

A homeowner promises to pay down past-due amounts on a mortgage over a specified time period while still making regular monthly payments.

RESPA

Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

Returned-Check fee

Charge imposed for a check not honored by issuing bank due to insufficient funds, which may be limited by applicable state law.

Reversal

Removal of previously imposed charge or reapplication of previously credited payment. Generally involves two-step accounting process in which item is reversed off the account in one transaction and then reapplied to the account in a different way in another transaction.

S

Second Mortgage

An additional mortgage on property. In case of a default the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and usually carry a higher interest rate.

Servicer

A business that collects mortgage payments from borrowers and manages the borrower’s escrow accounts.

Servicing

The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Settlement Statement

A document required by the Real Estate Settlement Procedures Act (RESPA). It is an itemized statement of services and charges relating to the closing of a property transfer. The buyer has the right to examine the settlement statement 1 day before the closing. This is called the HUD 1 Settlement Statement.

Settlement

Another name for closing.

Short Sale

The process in which a mortgage company works with a delinquent homeowner to sell the house by a real estate agent prior to the foreclosure sale. The sale price is less than what is owed on the mortgage.

Special Forbearance

A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.

Subordinate amount

Total amount of subordinate financing. This is the total amount of financing by a type of debt inferior to this loan, including HELOC current balances.

Subordination agreement

The document used to move a prior or senior Mortgage lien into a secondary position, or to prohibit a junior lien from becoming a senior lien when a modification to the existing senior lien is recorded.

Suspense Account

Account used to temporarily store funds until servicer determines proper permanent application. Often used to hold less than full contractual payments or insufficient reinstatement payments received while account is in default.

T

Consent of a borrower to provide account information to a party who is not the borrower on the mortgage note.

Third Party Origination

A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

Title 1

An FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home; Title I loans less than $7,500 don’t require a property lien.

Title Company

A company that specializes in examining and insuring titles to real estate.

Title Insurance

Insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event of a title defect. This charge is included in the closing costs. A policy that protects the buyer from title defects is known as an owner’s policy and requires an additional charge.

Title

A legal document establishing the right of ownership and is recorded to make it part of the public record. Also known as a Deed.

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